IQ expert Jason Beans: Shop around before settling on COBRA
Q: I just got laid off from my job. What are my health insurance options? Should I use COBRA or shop for health insurance on my own?
A: COBRA may or may not be for you, depending on whether you or your family members have pre-existing conditions or require expensive prescription drugs.
The advantage of COBRA is that you can get insurance at the rates your employer gets (buying in bulk), instead of the individual pricing you will get on your own. The other advantage is that if you or family members have pre-existing conditions, you will not see a rate increase and cannot be denied coverage with COBRA.
The disadvantage is these can be fully loaded plans where you’re paying for a lot of coverage you do not need. If you and your family are healthy, then you may want to save some upfront money and get on a short-term medical or individual plan. COBRA, regulated by the U.S. Labor Department, can provide you with the same health care coverage as before — possibly at a steep price and always for a limited time period.
By the way, the federal health care reform law makes no changes to COBRA, which stands for the Consolidated Omnibus Budget Reconciliation Act.
Weigh the costs of COBRA
Signing up for COBRA enables an individual or family to have the same health benefits as when the employee was working. The only catch: You are now laid-off and responsible for paying the full premium, plus a 2 percent administrative fee that your employer might tack on.
COBRA can be extremely expensive, depending on your situation. For example: John D. was laid off from his job as an underwriter at a large insurance company. Before his layoff, John’s monthly premium for his family PPO health plan was $1,200, of which he paid 30 percent ($360) and his employer paid 70 percent ($840). John decided to enroll in COBRA. His monthly cost was $1,224 ($1,200 for the total amount of the premium plus the 2 percent administrative fee).
Like John, many laid-off workers are just trying to cover their basic living expenses and can’t have their health insurance premium looking like another mortgage payment. So take your time and explore your options. From the day you are laid off, you have 60 days to make a decision on COBRA.
Look at alternatives
If you and your family are healthy, then you may want to look for other options, like a private insurance plan, a spouse’s health plan or a group plan.
First, private insurance plans often cost 25 percent to 30 percent less than your COBRA option if you select a high-deductible plan. You can go directly to a health insurance company or through a licensed insurance agent. Opt for a high-deductible plan that includes basic preventive care (such as annual checkups). Do your research online; depending on where you live, you even can buy your coverage online.
Your most cost-effective option may be getting on your spouse’s or partner’s employer plan. Many employer-sponsored health insurance plans let employees add family members who’ve been laid off. Most health insurance plans provided by large companies will take immediate action on the addition of family members, so you won’t have to wait for annual enrollment. Nonetheless, make sure you do this within 30 days of a layoff; otherwise, the laid-off person may be rejected.
Finally, look into group health insurance coverage. You may find this type of coverage is more reasonable and accessible than an individual plan. Group coverage is available from professional associations, trade organizations, college alumni associations, fraternal organizations and religious groups.
The bottom line is that if you’re healthy and shop wisely, you can get into a great health plan and save hundreds of dollars a month rather than rushing into COBRA.
Jason Beans is CEO of Chicago-based Rising Medical Solutions, a medical cost containment/care management company serving the workers’ compensation, group health, auto and liability markets. Beans founded Rising in 1999. Since then, Beans has received a number of honors, including Business Council Advisory Man of the Year and Midwest finalist for Ernst & Young Entrepreneur of the Year. Rising has appeared several times on the Private Company Index’s Top 10 Growth list and Inc. magazine’s Inc. 5000 list.
Beans earned a master’s degree from MIT’s Entrepreneurial Masters Program and a bachelor’s degree in finance from Boston College.
For more information, visit www.risingms.com.
If you have a health insurance question for Jason Beans, please send it to firstname.lastname@example.org.